The Pros and Cons of 0% APR Credit Cards
The Pros and Cons of 0% APR Credit Cards

The positive impact of a credit card on your finances depends on how you use it. A 0% APR or a balance transfer card can be a godsend if you make the right choices. Otherwise, you might regret signing up for years to come.

Before choosing a credit card in this niche, it can be useful to know the potential advantages and disadvantages you will face. Not only can this inform your decision on which new card to get, but arming yourself with information can help you avoid finding yourself in a worse situation than when you started.

Benefits of 0% APR Credit Cards

The main benefit – avoiding interest – is obvious, but other potential benefits are more subtle. Consider these benefits before applying for an interest-free credit card.

Save money on interest

This one shouldn’t surprise you, but 0% APR credit cards can help you save a considerable amount of money on interest. This would be true regardless, but it’s especially true if your alternative is using a traditional credit card since the average credit card interest rate is over 16%.

How much could you save? Imagine you have credit card debt of $4,000 at 16% APR and you decide you can pay $200 a month. In this case, it would take you 24 months to get out of debt and you would pay over $683.59 in interest along the way.

If you pay $200 a month with 0% annual interest, you could be debt free in 20 months with $0 interest paid. This assumes your 0% offer is for at least 20 months, which matches some of the best offers around, including the US Bank Visa® Platinum card and the Wells Fargo Reflect℠ card.

Use Bankrate’s credit card payment calculator to enter your balance and interest rate and see how much you can save with a 0% APR card.

Reduce your monthly payments

While interest savings may be your goal, going from a higher rate to 0% APR can also lower your required credit card payment each month.

But remember that your credit card’s APR will resume at the normal rate once your intro APR period ends. In other words, your lower monthly payment may not last long.

Pay off debt faster

Paying no interest on consolidated debt with a balance transfer credit card can help you reduce your debt much faster.

With no interest charges added to your bill each month, every penny you pay for your debt goes directly to your principal balance.

Enjoy perks and spending rewards

Be aware that many credit cards with 0% APR also allow you to earn rewards on purchases. This can include a welcome offer and cash back or reward points based on every dollar spent.

Credit cards can also come with valuable benefits and protections for consumers, including benefits such as cell phone insurance, purchase protection against damage or theft, and extended warranties.

Improve your credit score

Finally, using any credit card can help improve your credit score if you use plastic responsibly. Paying off debt can help boost your score because it lowers your credit utilization rate, and making on-time card payments is the most important factor used to determine your FICO score.

Disadvantages of 0% APR Credit Cards

While there are many benefits to consider with 0% APR credit cards, using your card the wrong way can cost you money. Here are the main disadvantages of using this type of credit card.

Late payments can frustrate your plans

First, it’s important to understand that making a late payment on a 0% APR credit card can lose your introductory APR period. Indeed, late payments normally constitute a violation of the terms of the introductory offer.

New Credit Cards May Temporarily Affect Your Credit Score

Applying for a new credit card will result in a thorough investigation of your credit report which may affect your credit score. However, keep in mind that the impact is temporary and minor. Unless you need to keep your credit in tip-top shape because you’re applying for a loan soon, a slight drop in your score is nothing to worry about.

Balance transfer fees may apply to transferred debt

If you plan to use a 0% APR credit card to consolidate and pay off your debts, you will incur a balance transfer fee which is usually between 3% and 5% of the amount you transfer.

While paying these fees may be worth it for the interest savings, it’s still important to understand that balance transfers are rarely free.

Introductory APR Periods Don’t Last Forever

Zero rate offers are only valid for a limited time, usually up to 18 or 21 months. At the end of the introductory period, the amounts you owe will begin to accrue at your card’s usual variable rate.

And remember that credit cards generally charge higher interest rates than other financial products like personal loans and home equity loans.

Zero rate offers can make you complacent

Last but not least, having 0% APR debt can give you a false sense of security. Since you know interest doesn’t accrue on your purchases, transferred debts, or both, it’s easy to become complacent and pay less each month than you should.

Credit cards with 0% APR, especially those with rewards, may even entice you to spend more than you intended.

When it makes sense to get a 0% APR credit card

If you’re responsible for your finances and want to save money on interest for a limited time, a 0% APR credit card can be a boon to your finances. Consider getting one of these cards if:

  • You are planning to make a major purchase and expect to be able to repay the full charge during the introductory card offer period.
  • You really want to get out of debt and you have a plan to pay off all or most of your balance during the introductory offer period of a card.
  • You’re between jobs or recently faced unexpected expenses, and you want a card that will give you time to pay off new balances without interest.
  • You are disciplined enough to avoid accumulating new balances that you cannot afford to repay.
  • Making on-time payments on credit cards and other bills has never been a problem for you.

When You Shouldn’t Get a 0% APR Credit Card

The following scenarios indicate that a 0% APR card can cause more trouble than it’s worth:

  • Credit card debt is a major problem in your life, or it was a major problem in the past.
  • Have you ever struggled to pay your bills on time and you fear it will happen again.
  • Having a new credit card could easily tempt you into overspending.
  • You want to transfer your debt to a card with 0% APR so you can spend more on your old cards.

You’re better off skipping 0% APR credit cards in either of these scenarios. You may even want to avoid taking out new lines of credit, at least until you can work out a plan for your finances.

If you already have credit card debt and need to consolidate it, you can also consider alternatives to credit cards. For example, a personal loan would let you pay a fixed monthly installment with a fixed interest rate, and you’ll know exactly when you’ll be debt free from the start. Meanwhile, personal loans don’t make it easy to accrue new fees like credit cards do.

If you have accumulated equity in your home, you can also use a home equity loan or home equity line of credit (HELOC) to consolidate your debt. Either option may offer a lower interest rate than traditional credit cards, and the loan will be secured by the value of your home.

Whatever you decide, remember that your old debts and new charges won’t go away on their own. A 0% interest credit card can help you save money and time, but the rest is up to you.


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